Question

Computing earnings per share

HEB Corporation had net income for 2018 of \(60,450. HEB had 15,500 shares of common stock outstanding at the beginning of the year and 20,100 shares of common stock outstanding as of December 31, 2018. During the year, HEB declared and paid preferred dividends of \)2,600. Compute HEB’s earnings per share.

Short answer

Earnings per share of the company is $3.25

Step-by-step solution

Computation

$\begin{array}{c}\mathbf{Averageoutstandingcommonstock}\mathbf{=}\frac{\mathrm{Beginningcommonstock}-\mathrm{Endingcommonstock}}{2}\\ \mathbf{=}\frac{15,500+20,100}{2}\\ =17,800\mathrm{shares}\end{array}$

 Step 2: Calculation of earnings per share

Earnings Per Share
Net Income	$60,450
Less: Preference dividend	($2,600)
a	$57,850
b. Average outstanding common stock	17,800
Earnings per share (a/b)	$3.25